Be very careful if you choose to float

The US stock market rally continues once more this morning. It seems as if we have again reached a point where stock investors refuse to let major economic news drag them down. It reminds me of how the markets reacted to initial news about the housing market and other segments of the US economy stalling. The term “Irrational Exuberance” became a common term, with many pundits smirking at the thought of a housing collapse. Have you watched the movie “The Big Short”? It provides great insight into the markets ability to overlook economic truths and continue to artificially drive investment values beyond reason. Money is the driver. As long as people are willing to promote and hype up the markets, there will always be a segment of investors who fearlessly follow.

Today was an important news day, with a Personal Consumption Expenditures (PCE) update released this morning. PCE for the month of May came in at +0.2%, which was slightly lower than estimates of +0.3%. Core PCE, which stripes out food and energy prices, was also reported to be +0.2%. Year over year Headline PCE is now at 0.9%, with Core PCE at +1.6%. Since this is the Fed’s favorite gauge of inflation, it can certainly be a market mover. Given the tame read, there was very little reaction in the markets.

Personal Income and Spending for the month of May was also released this morning. Spending was reported to be up 0.4%, which matched expectations. However, Personal Income was reported to be only +0.2%, which missed expectations of +0.3%. This would normally be interpreted as bad news for the US stock market. However, it seems to be widely overlooked by stock investors.

Mortgage bonds continue to hover near all-time highs, making now an incredible opportunity to secure an interest rate. Although bonds have held up well against a strong stock market, we could see a bit of profit taking take place if investors feel there is limited room for continued growth. Therefore, be very careful if you choose to float.